INTRODUCTION
Knowledge has increasingly become a key resource of an organization over a past few decades. Many organisations attempt to improve organisational performance and productivity and retain competitive advantages by using effective knowledge management.
‘‘If HP Knew what HP Knows we would be three times more profitable.’’
Lew Platt, former CEO of Hewlett Packard
“If Siemens only knew what Siemens knows”
Guiding Principal, Siemens
From the quotes above, Hewlett Packard (HP) and Siemens are multinational companies which operate in many countries and they offer a wide range of services, it is a challenging issue for them to manage knowledge produced from every sector across the organisations. Firms are no longer interested in what they have done, but in which potential actions that might be able to accomplish by leveraging the use of existing resources, collective know-how, talent and experience. Apart from knowledge, another vital element is employees who are playing an important role in knowledge management.
This essay aims to discuss the key question “Is there a link between Knowledge Management and organisational performance?” According to many literature reviews, there are evidences that support the relationship between Knowledge Management and organisational performance.
This essay will give introduction to knowledge and effective knowledge management, followed by the enablers and obstacles that associate with the effective knowledge management within organisations. The literatures analysed the relationship between knowledge management and organisation performance will be discussed. Finally, the conclusion is provided.
KNOWLEDGE AND EFFECTIVE KNOWLEDGE MANAGEMENT
Based on Nonaka and Takeuchi (1995), there are two types of knowledge: tacit and explicit knowledge. Tacit knowledge is intangible meaning that it is equipped within a person and difficult to be codified into specific forms. This leads to the difficulty in imitation, sharing and transfer. However, it can be shared by person-to-person approach such as face-to-face communication. Explicit knowledge can be codified into a form of documents or tangible objects, so they are easily shared among people and easy to reproduce. Knowledge is considered to be a precious resource apart from financial capital, physical capital, external capital and organisational capital. The concept of Knowledge-based Organisations (KBOs) has been developed since the early of 1990s and they are driven by using a collection of knowledge to make effective decision making which delivers a competitive advantage across the value chain (PwC, 2016). Knowledge sharing inside this type of firms is implemented using technology to support and enhance the capabilities of access across the whole organisation. This is to ensure that employees from different sectors are able to access key resource that can help in faster decision making and saving time and cost of communication. PwC illustrates the example case from KBO Pharma Inc., who successfully used KM to drive competitive advantage throughout the product life cycle of their new drug device using effective knowledge management to enable the increasing in productivity which results in several key competitive advantages acquired (PwC, 2016). The publication states two common components in KBOs which are knowledge culture and IT infrastructure. Top management and organisational leaders should encourage and motivate employees to create the culture of knowledge sharing. IT infrastructure is necessary to facilitate and accelerate the capabilities of effective knowledge management within organisations.
Knowledge Management (KM) is defined as a process that helps organisations identify, select, organise, disseminate, and transfer important information and expertise that are part of the organisation’s memory (Grant et al., 2010). Although KM has been implemented in many organisations, around 500 companies failed to successfully share knowledge within organisations and it roughly cost $31.5 billion a year in 2004 (Quast, 2012). Therefore, it is not easy to develop knowledge management without assessing the organisation’s environment and planning for possible circumstances that may occur in the future after implementation. Due to a great deal of data and information produced in an organisation, Knowledge Management has been playing an important role in making company successful because it can help in facilitating decision making capabilities, building learning organisations by making learning routine and stimulating cultural change and innovation (Quast, 2012).
Moreover, KM enables the ability to reuse the existing knowledge derived from previous cases to perform actions in undiscovered or unknown circumstances and allows the organisation to act productively based on what it knows which creates new opportunities and innovation (Frappaolo, 2006). KM that is able to deliver values and benefits for achieving organisation’s goals related to knowledge structure is an effective KM. Effective KM should consist of three main components: people, process and technology.
ENABLERS AND OBSTACLES OF EFFECTIVE KNOWLEDGE MANAGEMENT WITHIN ORGANISATIONS
Since different organisations have different characteristics, visions and directions to deal with knowledge management, a set of various factors could be enablers which help facilitate or obstacles which hinder effective knowledge management implementation within each organisation. According to several studies, the most important key factor that impacts the organisational growth is knowledge workers who offer their potentials to create innovations, drive strategic campaigns and programmes and organise strategies in order to help their organisations to be competitive (Amir R., 2014).
Based on Amit R. et al., 2014, five categories consisting of enablers and obstacles within organisations have been investigated on their effects to improve organisational performance. The data gathered from the survey done by Director, General Manager and Manager of 19 sectors in Saudi Arabia.
A. Barriers to the implementation of KM
The first category is barriers to the implementation of KM which are listed in Table 1 below.
Table 1 Barriers to the KM implementation
Barriers Description
Unwillingness to share knowledge Employees consider knowledge as their potentials that make them valuable than others, so they are not willing to share, create and transfer knowledge because they will lose their values.
Lack of job security and trust This is a consequent from the above barrier. Employees are not confident to share knowledge because they are afraid of being abandoned from organisations and their positions might be taken over by colleagues.
Resistance to change Employees are resistant to change the way they do their job. They do not want to learn new things and/or develop more innovative working processes to share with others.
Lack of time and time-consuming processes Knowledge sharing and knowledge transfer are time-consuming processes. Some employees would like to share knowledge but refuse to do so because they do not have enough time due to the workload.
Costly KM can be costly since it may need IT systems to enhance the capabilities of knowledge sharing across the whole organisation. Moreover, if the companies develop new systems, they need to train employees how to use the systems effectively and this leads to the training cost.
Poor verbal and written communication This focuses on the soft skills that employees are equipped with. Some people are smart and have enough experience to coach others. They have time and are willing to share knowledge but they have difficulties in communicating using verbal or written communication
Difficulty in documenting certain types of knowledge Some particular knowledge is difficult to be codified into tangible formats. Apart from that, the great number of
scenarios or cases that have to be recorded also make them difficult to be documented.
The list above accords to the internal barriers to knowledge sharing derived from Siemens case study (Bo Bernhard Nielsen, 2003). There are three components included in the internal barriers in Siemens: corporate culture, loss of personal market and time-constraint.
B. Organisational Learning (OL)
The second category is Organisational Learning (OL). OL is the main goal of KM because it creates good environment that is suitable to motivate employees to learn within an organisation in order to improve employees’ performance and efficiency. Employees’ performance and efficiency directly help the organisation to sustain its competitive advantage. OL can be classified into 6 activities as listed below:
These activities can be used to develop employees’ performance but the results will be vary depending on the culture and employees’ abilities. Human Resource department (HR) will involve in the OL development since the activities directly associate with employees.
C. Means of Communication
Means of communication is considered as the next category. This focuses on the flow of knowledge passing across the organisation. The channels of communication of accessing knowledge and contacting experts must be well-structured and easily to facilitate the knowledge sharing, transfer and utilisation.
According to Chin-Fu Ho et al. (2014), it performed the analysis on the enablers that have impact on knowledge circulation process. The knowledge circulation process proposed by Lee et al. (2005) consists of five elements: knowledge creation, knowledge accumulation, knowledge sharing, knowledge utilisation and knowledge internalisation. The findings from the study show that the organisational culture includes the following has positive impact on the knowledge circulation process.
D. Critical Successful Factors (CSFs)
There are 14 significant factors that involve in the successful KM implementation listed below in ranking order.
1) Top management commitment and support
2) Awareness campaigns
3) KM project teams
4) Organisational culture
5) Organisational structure
6) Teamwork
7) Technology
8) Time
9) Roles of managers
10) Reward and punishment systems
11) Reassurance of knowledge-possessing employees (job security)
12) Involvement in decision making
13) Job rotation
14) Follow-ups and audits
The results may vary depending on type of organisation and knowledge management implementation. The overall result indicated the top management commitment and support as the most important CSF, followed by the awareness campaigns and KM project teams, respectively. The initiation and support from the top management are the main factors that drive KM implementation within organisation since processes are complex and cost of implementation is very high. The employees need to understand and be aware of what is going to happen in the KM implementation, what they have to do and why they have to do so. Finally, at least one team should be dedicated to be responsible for coordinating with key people who involve in KM implementation. Rewarding schemes can be used to attract employees’ willingness to share knowledge but they should be implemented in appropriate manner. For example, Siemens developed a platform for employees to share knowledge and they could also vote for the topics that value to their work (Karim R. Lakhani, 2015). The votes could be exchanged to rewards.
E. Impacts of Knowledge Management on Organisational Performance
Implementing KM in KBOs provides benefits that positively relate to the organisational performance, productivity and efficiency. Since the knowledge which is available and accessible across the organisation will be used as a driver to perform better decision-making and it can also be reused to solve issues that occurred in the past which will save time and cost. The employees will be equipped with useful skillsets necessary for knowledge circulation process. These abilities will help retain a sustainable competitive and improve organisational performance and efficiency of organisations.
KNOWLEDGE MANAGEMENT AND ORGANISATIONAL PERFORMANCE
According to Zack et al. (2009), an exploratory analysis between knowledge management and organizational performance had been performed. The data collected from the questionnaire that has been filled out by mid-level managers and senior executives working in profit-oriented firms of ten different industry sectors located in Australia, Canada and the USA was used to test the research model. The research model as shown in Figure 1 illustrated the hypothesis on the relationship of three components: KM practices, organisational performance and financial performance.
There are twelve KM practices included in this analysis as follows:
Table 2 KM Practices included in the exploratory analysis
KM practices Measures
KP1 Knowledge is made a part of strategic planning
KP2 Benchmarks knowledge versus competitors
KP3 Knowledge strategy maps knowledge to value creation
KP4 Identifies internal sources of expertise
KP5 Employees are valued for what they know
KP6 Experiments/learns regarding customers and markets
KP7 Experiments/learns regarding products and services
KP8 Experiments/learns regarding operations and technology
KP9 Encourages and rewards knowledge sharing
KP10 Best practices are transferred within the organisation
KP11 Exploits external knowledge
KP12 KM group provides value
Table 3 lists three value disciplines based on Treacy and Wiersema (1996) which were included in the analysis and directly related to KM practices. They identify the different three dimensions that can be used to measure the organisational performance in this study.
Table 3 Three value disciplines used to measure organisational performance included in the exploratory analysis
Value disciplines Measures KM practices focus
Production leadership Innovation
Quality KP3, KP7
Customer intimacy Customer satisfaction
Customer retention KP6, KP7, KP11
Operational excellence Operating cost –
The study performed the pairwise correlation between KM practices and organisational performance. All of the KM practices significantly and positively correlated to overall organisational performance except KP6 (Experiments/learns regarding customers and markets) which only relates to customer intimacy. The highly-correlated KM practices focusing on each discipline are listed in the KM practices focus column in Table 3. For product leadership discipline, it significantly related to the knowledge regarding the products and value creation. Learning about customers and markets, products and services and making use of external knowledge have impact on customer intimacy. However, there was no KM practices that has significant impact on operational excellence discipline. The respondents were unable to agree that KM practices are important regarding the operational performance.
The findings from the analysis confirmed that knowledge management practices have direct impact on organizational performance but not directly on financial performance. In addition
, the result from the analysis also showed that organisational performance has the relationship with financial performance. The organisational performance mediates the relationship between KM practices and financial performance.
This study may limit to the profit-oriented firms in Australia, Canada and the USA. Therefore, the results may vary and depend on the characteristics and culture of organisations.
Interestingly, there is another research studying on the effects of knowledge management strategy on organisational performance: a complementarity theory-based approach (Byounggu Choi, 2008). This study examines the relationship between knowledge management strategies and organisational performance. Knowledge Management (KM) strategies are also important for an organisation to ensure that the alignment of processes, culture and technology produce the effective knowledge creation, sharing and utilisation within organisations. There are two key dimensions of KM strategies: KM focus and KM source. KM focus dimension can be categorised into two types: explicit- and tacit-oriented.
KM source identifies where the knowledge can be obtained. It consists of internal- and external- oriented.
This study analyses the KM strategies based on complementarity analysis which is classified into two sub-categories:
Categories Description
Symmetry complementarity condition A condition in which both input variables behave in a similar manner in effecting the performance outcome
A condition in which there is incremental performance by implementing input A and input B simultaneously. Positive performance will be impacted from implementing both inputs
A condition in which there is positive performance by implementing input A and input B independently.
Asymmetry complementarity condition A condition that only one KM strategy has positive incremental impact on performance when it is implemented independently. Another KM strategy can also be implemented as an assisting role.
The data collected from 115 major Korean companies was used to analyse the complementarity of KM strategies. There are 3 combinations between KM focus and KM source performed to compare the results of complementarity in order to find the best KM strategies that enhance the positive incremental organisational performance. The three combinations consist of tacit-oriented and explicit-oriented, external-oriented and internal-oriented and tacit-internal oriented and explicit-external oriented.
From the results, combining tacit- and explicit-oriented KM strategies provides non-complementarity meaning that implementing tacit- or explicated- oriented strategies together do not affect the positive change on organisational performance. In contrast, external-oriented and internal-oriented obtained non-critical symmetric complementarity. Merging internal and external sources of knowledge results in obtained the higher level of organisational performance. Finally, the combination of KM focus and KM source dimensions revealed asymmetric complementarity condition meaning that they also lead to the higher level of organisational performance.
Therefore, KM strategies can also be considered as the dimensions that have impact on organisational performance.
CONCLUSIONS
Knowledge Management is currently a critical process which creates competitive advantage to organisations. KM provides many benefits such as better decision making, saving time and cost of communication and creating new innovation and opportunities for products and services. Developing effective KM will be beneficial to organisations in terms of organisational performance improvement and increased productivity. In the implementation of KM, there are enablers and obstacles categorised into 5 categories: barriers to the implementation of KM; organisational learning; means of communication; critical success factors; and impacts of knowledge management on organisational performance. Information from this section emphasises on the possible barriers that may obstruct the effective KM implementation and also identifies the communication channels and relevant factors that companies should focus on before actually implementing KM in order to avoid the failure.
Even though there was no significant evidence indicating that the effective KM has a direct impact on financial performance, all of the KM practices have positive impact on overall organisational performance except experiencing and learning regarding customers and markets which only relates to customer intimacy. The organisational performance acts as a medium between KM practices and financial performance because the results from organisational performance have impact on financial performance. The combinations of KM strategies between KM focus and KM source and KM source itself can achieve higher organisational performance.